Daily Archives: November 10, 2008

Foreclosures – Part III

Point 3

Mortgage Walkers and Jingle Mail

Jingle Mail

Jingle mail is the newly popular term used to describe situations where a homeowner mails their house keys to the mortgage lender, stops making mortgage payments and walks away from the home. However, this is an extreme situation with serious consequences.

Mortgage “Walkers” who abandon their home are almost guaranteed to damage their credit report and credit score for several years. A foreclosure will show on the report for 7 years. Missed loan payments will also bring down their credit score, though it may rebound within a couple years if they don’t miss payments on any other loans.

If the lender forecloses on a home and sells it for less than what it owed them, in many states the lender has the right to pursue the mortgage holder to pay them the balance of the loan, called a deficiency judgment.

California and some other states are notable exceptions.

California has non-recourse laws which provide that a lender cannot come after the homeowner for additional money if a foreclosed home sells for less than the amount of the mortgage. The California law permits this only if it’s the first mortgage that hasn’t been refinanced.

In addition, some remedies, designed to help restructure the loan, allow the homeowner to keep the home and avoid foreclosure, are only available to homeowners who are still living in their home.

As mentioned earlier in most cases, once a homebuyer splits, the mortgage lenders are stuck with the loss. Americans have long been able to cut their losses from bad investments and start over. It stands to reason that when the market made houses into yet another speculative investment, Americans would do the same.

Borrowers acted rationally in response to market forces and incentives during the bubble: Buy a house because prices always go up; you can’t lose.

Many are acting rationally now: Mail the keys back and un-borrow the money, because prices are sinking fast while the debt isn’t.

SOURCE  – The Rise of the Mortgage Walkers by Nicole Gelinas   AND

Walking Away from Property and Your Mortgage by Jennifer E. King for lawyers.com

QV October Valuemap shows prices down

The latest QV Property Valuemap released today shows residential property prices have declined further.

In Nelsons case, not as much as other centres, but on a par with the likes of Invercargill & Napier.

QV went on to say …… Most of the main centres are showing further slight declines in property values. Across the Auckland area property values are down 7.7% compared to the same time last year, declining slightly from the -7.0% reported last month.  Hamilton City’s values have also dipped slightly further to -9.0%, Tauranga to -7.9%, the Wellington area to -6.1% and Christchurch to -7.8%. Dunedin improved slightly to -8.2% compared to the -8.5% reported last month.

There is more variability in the change in property values across the main provincial centres.  Whangarei (-8.5%), Rotorua (-9.4%), New Plymouth (-8.1%), Queenstown Lakes (-8.1%) and Invercargill (-4.6%) are all showing year on year declines greater than those reported last month.  Wanganui (-6.0%), Palmerston North (-9.5%) and Nelson (-4.9%) also declined further, but only slightly.  The year on year change in Gisborne remains unchanged at -10.1%, while Napier (-4.3%) and Hastings (-5.0%) have both recovered slightly.

Nelsons decline was reported much as in the same vein after Septembers results, a month ago, with the following headline….

Region’s house price falls less than most.

Good news today that petrol is now under the $1-60 for the first time in quite a while.

QVs national spokesman Blue Hancock went on to say

“Activity levels remain unusually low, especially considering that spring usually brings an upsurge in the number of house sales,” and  “There appears to be uncertainty in the market, with many buyers and sellers waiting to see any impact from the financial crisis, dropping interest rates and the election before committing to property transactions.”

It has to be said, and as I’m sure REINZ data will indicate when released soon, that the above data is based on volumes that are down quite a bit on corresponding periods from last year. Would be hard to imagine that after the last month with all the turmoil in the share market, and talk of global finacial issues, that we would have had a record month.

I think Blue hit it on the head with his statements there.

Foreclosures – Part II

Point 2

Where did the money come from, and how easy was it to get?

No-docs were used more aggressively as the boom began to fizzle.

The following appeared in a Wall St Journal article.

Brokers had extra incentives to sell those loans, which have terms that often are confusing to borrowers.

Rate Sheet via WSJ

For instance, according to a March 2007 “rate sheet” (Click on image left) distributed by New Century Financial Corp., now in bankruptcy-court protection and no longer making subprime loans, brokers could earn a “yield spread premium” equal to 2% of the loan amount — or $8,000 on a $400,000 loan — if a borrower’s interest rate was an extra 1.25 percentage points higher than the Irvine, Calif., lender’s listed rates.

Borrowers weren’t supposed to see the information. Tiny print at the bottom of the document warned: “For wholesale use only. Not for distribution to the general public.”

On average, U.S. mortgage brokers collected 1.88% of the loan amount for originating a subprime loan, compared with 1.48% for conforming loans, according to Wholesale Access, a mortgage research firm.

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And in this report of 61,000 Sacramento-area mortgages over two years, the Sacramento Bee says

In 2005, while the market was still relatively healthy, the median household income of Sacramento County homebuyers was $78,650, according to U.S. census data. The median income reported on loan applications was $90,000, a difference of 14 percent, according to records available under the Federal Home Mortgage Disclosure Act.

In 2006, as the market went cold, incomes were pumped up even more. Homebuyers in Sacramento County earned median household income of $79,735, but the median income reported on mortgage applications was $97,000, a 22 percent difference.

Income discrepancies pop up throughout the region. The median income on mortgage applications in Yolo County last year was $104,000; the median income of Yolo homebuyers was $83,400. El Dorado County homebuyers earned $100,000 but their loan applications said they earned $126,000. Placer County homebuyers earned $90,115, but loan applications said they earned $116,000.

In northern Sacramento, including Del Paso Heights and North Highlands, the median income reported on mortgage applications last year was $95,000. But the median income for all northern Sacramento households was $36,000, according to research firm Claritas.

In south Sacramento, including Meadowview, Fruitridge and Florin, the median income reported on mortgage applications was $84,000. But the median income among all south Sacramento households was only $36,000 in 2006. Only 12 percent of all households in those neighborhoods earned as much as $84,000, Claritas said.                             (From the The Sacramento Bee Published: Sunday, Nov. 18, 2007)

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….specialists spoke of a reckless culture in which lenders failed to make even basic checks on borrowers’ income. Phillip McCall, a mortgage fraud investigator, cited a case of a warehouse worker who applied for a mortgage, claiming an income of $7,500 per month: “Basic common sense is going to tell you someone in a warehouse is not going to be earnings $90,000.”

Read the full article here….

Who is to blame for this……. Part III to follow